CNNMoney.com || When Grandma offers tuition help

Despite losses in their own investments, 65% of grandparents plan to help their grandkids pay for college, reports the College Savings Foundation. That may spell relief for parents squeezed by the economy. But handled incorrectly, such giving could hurt your child's chances for financial aid, says Joe Hurley of savingforcollege.com. Here are the best ways for Grandma to give.

Cut a check to the parent

Any money given to a kid could be considered income, and by law must be reported on the Free Application for Federal Student Aid (FAFSA). The aid award could then be reduced by up to 50% of the gift, says Mark Kantrowitz, publisher of FinAid.org. A check sent to the school can similarly cut into a student's award. (Yes, schools pay attention to who signs the checks.) Meanwhile, money given to the child's parent may be considered a parental asset, and that's far more favorable. There are significant exclusions on parental assets, and Mom and Dad are only expected to contribute up to 5.64% of the rest. Just advise Grandpa to keep his yearly contribution under the gift-tax exclusion - $13,000 per grandparent per beneficiary in 2009 - to avoid taxes.

Open a 529 account

Grandparents can stash up to the gift-tax exclusion annually in a 529 college savings plan, or put away a lump sum of up to $65,000 apiece using a special five-year election on the federal gift-tax form. As long as the grandparent is the owner and the child is still a dependent, the account value won't count against federal aid. But it could affect school aid. Also, distributions are considered student income, says Kalman Chany, author of "Paying for College." So it may make sense to hold off using the funds until senior year.